Find out what to do if an agency or umbrella company offers to reduce your tax liability and increase your take home pay.

Some people that are employed through agencies and umbrella companies are signing up to arrangements that claim to save them tax, but are in effect tax avoidance schemes.

Most employment agencies and umbrella companies operate within the tax rules. However, some umbrella companies and agencies promote arrangements that claim to be a ‘legitimate’ or a ‘tax efficient’ way of keeping more of your income by reducing your tax liability.

These arrangements leave you at risk because you are ultimately responsible for your tax affairs and for paying the correct amount of tax and National Insurance contributions.

These types of arrangements are likely to result in you paying additional tax, interest and perhaps penalties, and are never HMRC approved.

How these arrangements work
These arrangements may work in different ways, but the companies that use them claim they will help you keep more of your income and reduce your paperwork.

They will tell you that the payment is non-taxable because it doesn’t count as income as it’s a loan, credit, or something similar. These payments are actually no different to normal income, and tax and National Insurance contributions are payable.

The company may tell you that you have to sign up to these arrangements if you want to work for them. If they do, you should seek independent professional advice so that you fully understand the options available to you.

How payments are made
The arrangements may vary but this is an example of how they operate.

You receive a small payment which has tax and National Insurance contributions deducted.

At the same time (or shortly after) you receive a larger payment without tax and National Insurance contributions deducted.

The larger payment may arrive from a different account than the first payment, potentially from overseas, although not necessarily.

Your payslip may show the larger payment separately and refer to it as something other than pay. No tax or National Insurance contributions have been deducted.

What you should check
You should check if:

the company promises that you can keep 80, 90 or 95% of your wages and be tax compliant (this is unlikely to be true as, in most cases, the basic rate of Income Tax is 20% and National Insurance contributions are also due on earnings)

only a fraction of your salary is paid through payroll and subject to PAYE (indicating that you are only paying tax on some of your income)

you are paid using a loan, credit or investment payment and the company claims this isn’t subject to income tax or National Insurance contributions (this is tax avoidance)

the payment from your umbrella company is routed through various companies before it comes to you

These companies may tell you they are compliant with tax rules but you shouldn’t rely on this. These companies do not always explain the risks of using these schemes or try to hide the fact they involve tax avoidance.

The risks of using these schemes
Arrangements like these that claim you pay less tax are extremely high risk.

HMRC will always challenge tax avoidance schemes. If you are involved in an arrangement like this, you’re highly likely to be avoiding tax and you could end up paying additional tax, National Insurance contributions and interest. Penalties may also apply.

Previous users of avoidance schemes were told that their arrangements were HMRC compliant, but later found out, to their cost, this was not true.

The ContractorUK has recently revealed statistics regarding the off-payroll working rule reform released on April 2017. It shows that the HM Revenue and Customs (HMRC) is the top IR35 blanket decision-making agency.

Out of the 10 public sector contractors surveyed, nearly 40 percent have their assessment carried out in a group instead of individually. Of these, around 19 percent were engaged with the HMRC, according to statistics revealed by the ContractorUK.

The joint-second biggest IR-35 blanket decision makers were the National Health Services (NHS) and the Ministry of Defence (MoD). These two public sector bodies that assessed the employment status of contractors in one swoop were also the first ones to take anti-PSC measures event before the IR35 rules were implemented. Other agencies that have applied role-based assessments include the BBC and the Ministry of Justice (MoJ).

The fact that HMRC is the top agency to apply blanket IR35 assessment is hardly surprising as the tax agency has vehemently defended the introduction of the reform. However, according to a representative at Qdos Contractors, HMRC would never accept that its determinations are a blanket assessment.

All of the role-based determination by the IR35 has resulted in ‘inside’ decision. However, a group based assessment is unfair. Blanket assessment of the IR35 rules does not consider the contractor’s role, working practices, terms, and special circumstances.

IR35 is Hard to Implement
According to the CEO of Qdos, Seb Maley, implementing the off-payroll working rule is not that straightforward. It is not possible to know the employment status without carrying out an individual check. The only exception is when the end-client controlled their contractors and does not accept the substitution.

The role-based blanket assessments don’t check specific factors like being in business on one’s own account. They tend to favour an outcome of inside IR3 even if the actual case is otherwise. As a result, Qdos have suggested five basic questions to ensure that the role-based assessment accurately depicts the employment status.

What is the right sample size for a role-based initial assessment?

Will the HMRC provide a clear criterion to determine the result of the value-based assessment?

Will guidance will be provided by the HMRC regarding when the role-based assessment is appropriate for end-clients?

Will HMRC ensure fair compliance regarding blanket assessment?

Will businesses who are found inside IR35 be penalized for blanket rulings?

Until the HMRC successfully answer the above five questions, the role-based assessment results cannot be considered valid. The tax authority needs to recognize that role-based blanket assessment can result in incorrect and unfair assessments.

The IR35 extension in the private sector is expected to have a negative effect on the labour market. This could cause a severe shortage in the market hurting the economy. Almost all recruitment, contracting, and accounting bodies have severely criticised the government’s plan to extend the off-payroll working rules to the private sector.

At the close of the IR35 consultation for private sector reform, many experts have shared their views on the impact of the controversial tax legislation in the private sector. The experts have put forward different points with the overarching aim to discourage the legislative bodies from extending the reform in the private sector.

The silence of HMRC regarding suggestions of experts apropos IR35 private sector extension suggests that their voices have simply been ignored. The suggestions of the experts that is supported by evidence show that the implementation of the reform has not resulted in the desired outcome.

Despite a large amount of evidence about flaws of the off-payroll working rules, HMRC continues to claim that the changes in the tax rules have been a success.

Experts Take a Different Approach Regarding IR35 Reform
In view of the unchanged stance of HMRC, a lot of experts have taken a different approach to prevent the blunders of the taxation reform. IR35 specialist is now calling for the government to provide employment rights to contractors similar to regular employees. They are paying taxes and thereby have every right to benefits extended to regular employees.

In the consultation response prepared by Ernst & Young, it was suggested that the government should consider developing an ‘IR35 passport’ whereby the status of contractors needs to be verified by specialists. The specialists could be an independent accredited body allowing firms to rely on their judgments thereby reducing the cost of assessments.

In addition, the majority of contractors who were surveyed by Qdos had stated that they should be given employment rights if they are deemed inside the IR35. This should be taken into consideration to avoid an abusive employment environment. In case the government does not take steps to remove flaws in the IR35 private sector reforms, it will result in a wide-scale worker exploitation and injustices that were the hallmark of the 19th and early 20th century. Progressive societies need to progress forward and make reforms to improve worker conditions. Unfortunately, the IR35 reform represents a step back to the bleak era where exploitation and abuse of worker rights were rampant.

After the close of the UK government’s consultation regarding the IR35, recruitment firms, umbrella representative bodies, and accounting and taxation bodies have published their remarks most of them against the IR35 roll out in the private sector.

The most recent response regarding the off-payroll working rules comes from the Recruitment and Employment Confederation (REC). It has suggested that the government should give sufficient time to businesses in the private sector to prepare. Also, the government should delay the planned IR35 extension in April 2019. The main recommendations of the recruitment representative body include the following.

The flaws in the IR35 determinations should be removed before its roll out in the private sector.

The government should respond to Matthew Taylor’s Review into modern working practices before implementing the off-payroll working rules. The review carried out by the Chief Executive of the Royal Society of the Arts considered impact on employment practices in light of modern business models driven by digital platforms for employer obligations and employee rights.

In case of the contractor fee-payer, the liability to conform to IR35 should rest with the end-client. The recruitment should not be held liable. It’s not fair to expect a recruitment body to accept full liability for a decision that has been taken by the end-client. However, there are exceptions ses such as when the end-client is shown to have failed in reaching a decision or has not responded to a request for justification.

An assessment of the impact of the reform should be carried out in the public sector as well as the analysis of the likely effects in the private sector. The review should measure the effects over the entire tax cycle that closes on January next year.

Adequate time should be given to business to prepare for the implementation of the off-payroll working rules. According to the REC, the April deadline is too early and should be taken off the table. A study by HM Revenue and Customs (HMRC) in fact have acknowledged that the public sector would not have faced difficulties if the lead-in-time was longer allowing them to better prepare for the reform.

According to the Head of Professional Services at the REC, Lewina Farrel, the ongoing certainty and low business confidence levels due to the Brexit has already caused tensions in the market. The government shouldn’t risk doing further damage to the market by introduction of the IR35 reform in the private sector.

The facts
Several couriers working for Hermes Parcelnet Ltd claimed that they were entitled to be paid the national minimum wage, receive paid annual leave, and that they had suffered unlawful deductions from wages. To be able to bring these claims, they had to show, at a preliminary hearing in the employment tribunal, that they were “workers”, as defined by the relevant legislation. An individual is a “worker” if they work under an employment contract or (as was relevant in this case) they work under any other contract whereby they undertake to perform personally any work or services for another party to the contract who is not by virtue of the contract that of the client or customer of any profession or business carried on by the individual. The main area of dispute in this case was whether the claimants were contracted to undertake to perform the work “personally”.

The starting point in determining whether an individual is a worker (where the individual is not working under an employment contract) is looking at the express and implied terms in the contract between the two parties. Case law shows that a written contract may contain clauses that are not part of the true agreement –i.e. the clauses do not reflect what the parties actually agreed. To decide if this is the case, a tribunal will look at the written term itself, read in the context of the whole agreement, and at evidence of how the parties conducted themselves in practice. If the written term does not reflect what the parties agreed, the tribunal will disregard it.

In this case, the written contract provided that;

“it is expressly intended that there is no mutuality of obligation between the parties”

“The Courier…agrees that he/she provides the services to the Company as a self-employed person…This agreement is a contract for Services….”

“You are not under an obligation to provide the service personally. Accordingly, you have the unconditional right to nominate a substitute to provide the service on your behalf, at any time for any reason. However, it is your responsibility to ensure that your nominated substitute carries out the service in line with the standards to which you would be subject if you were providing the service. Should you wish to exercise your right to provide a substitute, you should advise us of your substitution….”

These clauses outline key factors of self-employment – lack of mutuality of obligation, and that the contract is not to provide services “personally”. However, looking at all the evidence, the tribunal judge commented that “I find that the written contract was not a true or full reflection of the contractual agreement between Hermes and the couriers….I consider that the whole written agreement has the hallmarks of being designed with the principal purpose of presenting the couriers as falling outside [the definition of “worker”] rather than its principal purpose being to set out fully and accurately the contractual agreement between them and Hermes.”

The tribunal considered whether there was any mutuality of obligation between the couriers and Hermes, the judge commenting that (contrary to the wording in the contract) “I have no hesitation in finding that there is”. The couriers are assigned “rounds” by Hermes. Once the round has been assigned, Hermes is expected to send parcels on that round to that courier for delivery on every day of the week for which the courier is responsible. The courier is responsible for ensuring that the parcels are delivered (by themselves or by finding someone else to do so) and for dealing with any collections. There is therefore mutuality of obligation.

The judge then considered whether there was an unfettered right to substitute, as set out in the contract, and held that there was not.

The judge also looked at whether under the contract Hermes is a client or customer of business undertakings carried on by the couriers, and decided (again, with no hesitation) that it is not.

The couriers are therefore workers, and can bring claims in relation to national minimum wage, annual leave, and unlawful deductions from wages.

What does this mean for employers?
Cases on worker status will turn on the facts of that particular situation. As with previous cases on worker status, this case demonstrates how tribunals are fully prepared to look at how the contract actually works, and where this is inconsistent with the written terms of the contract, deem the contract to be a sham.

The representatives of contracting agencies have given responses regarding the Governments’ recently concluded consultation reform of off-payroll taxation is the private sector. Most have called the Government to carefully consider the matter and fix issues with the laws before implementation.

In response to the consultation, Qdos contractor, an agency that provides tax consultancy to contracting professionals, has stated that the tax reform could cause negative effect on the private sector. The tax reforms should be amended to remove flaws in determining the employment status. Without such corrections, early implementation of the taxation rules is highly inadvisable, according to the tax consultancy firm.

The taxation reforms in the public sector has not been successful. Thousands of contractors according to Qdos have been unfairly classified as being inside IR35. This has caused undue financial hardship for the contractors. It’s important that the taxation authority fixed loopholes before extending it to the private sector.

Qdos has suggested that HMRC should stop the advocacy of the role-based employment assessment. The tax consulting firm has insisted that implementation of the IR35 compliance rules should be accompanied by clear instructions and resources. These should be provided to the contractors and also firms in the supply chain.

Inefficiencies in IR35 Rules Needs to Be Ironed Out Before Implementation
The inefficiencies in HMRC employment status rules cannot be removed at once. It requires careful deliberation that will take time. The Government needs to make the necessary changes and extend the time frame of IR35 off-payroll working rules in the private sector. This is important to avoid any harm to the private sector companies.

The CEO of Qdos Contractor, Seb Maley, have noted that contractors are still being incorrectly being designated as inside IR35. Hasty implementation of the tax rules can greatly hamper productivity, which can have a negative impact on the UK economy. The private sector could face serious skill shortages as contractors will look for work outside the country to avoid substantial tax liability.

Maley has criticised the Government’s short-sighted view in extending IR35 to the private sector despite the shortcomings that were reviled when it was implemented in the public sector last year. The Government needs to make sure that the problems due to implementing the tool in the public sector is sorted before implementing in the private sector. In addition, sufficient details should be private to the private sector before rolling out of the off-payroll working rules next year.

The Chartered Institute of Taxation (CIOT) has recently published a response to the proposed IR35 reform in the private sector. The CIOT is an impartial education charity that works for an improved and efficient UK taxation system.

The response by the CIOT comes after the end of the governments’ consultation on the extension of IR35 reform on 10th August. The institute has questioned the decision to extend the controversial off-payroll working rules to the private sector. The key point raised by the institute is that the IR35 reform in the public sector has not been a success.

HM Revenue and Customs (HMRC) had estimated that around 58,000 more individuals had paid income taxes and National Insurance Contributions (NIC). This translates into an additional £410 million for the Exchequer. However, according to the CIOT, the increase in tax income and NICs may not necessarily be due to workers getting caught by the IR35 rules; it may be due to fee-payers acting more cautiously to avoid a fine.

A number of recent tribunal cases went against the HMRC. This suggests that the HMRC approach to the determining status of off-payroll workers is flawed. Also, the CIOT has said that it’s too early to contemplate about the success of the public sector IR35 reform. The reforms were introduced on 06th April last year while the last date of returns for tax year 2017/18 is 31st January in 2019. There could be more appeals regarding the IR35 rules that could go against the HMRC similar to the Jensal Software and MDCM cases.

Alternative to the IR35 Reform
The CIOT has suggested an alternative to rolling out the IR35 reform. A reporting requirement should be introduced similar to the one for businesses that are required to report payments to PSCs they engage on a regular basis.

In addition, the CIOT has suggested that additional instructions should be given to the taxpayer regarding off-payroll employment status. This should be reinforced by a penalty system whereby the workers should be jointly liable for noncompliance along with the PSC that had engaged them.

Other suggestions made by the CIOT include filtering PSCs to whom IR35 is not likely applied. Also, the CIOT has suggested that a process should be adopted whereby a PSCs would be caught by the IR35 automatically unless the agency proves otherwise. Also, increased penalties should be imposed in case a PSC fails to give adequate evidence against the ruling.

The CIOT also suggests that the PSC should not be taxed at source. Instead, the taxes should be paid as a genuine business provided the company provided evidence in this regard. The institute has called for making the tax rules less complex to avoid confusion.

The government’s consultation regarding extension of IR35 rules to the private sector is about to close. In order to ensure fair and transparent IR35 compliance, the Freelancer and Contractor Services Association (FCSA) has proposed a novel alternative to the controversial off-payroll working reform.

The ‘Enhanced Reporting and Enforcement’ strategy introduced by the trade association body of umbrella companies improve compliance by requiring the private sector personal service companies (PSCs), mediators, and fee-payers to divulge information within the supply chain. Moreover, the end-client is required to take actions to secure their personnel supply chain network. They should submit quarterly information reports to HM Revenue & Customs (HMRC) and the data from the report will help the tax agency to take compliance actions.

In short, the FCSA’s proposed solution would allow responsible actions by the PSCs in the private sector. The solution will allow PSCs to take actions with a duty for reasonable care.

Julia Kermode, CEO of FCSA, said that the new proposal would empower end clients and PSCs to ensure compliance. The strategy would also make compliance with the tax rules commercially advantageous for the supply chain intermediaries.

Probably the best thing about the FCSA’s strategy is that it entails far less administrative costs as compared to the IR35. This is because it’s common among the compliant businesses within the presume supply chain to carry on regular audits. Also, they already maintain a list of preferred suppliers depending on the compliance ratings.

FCSA Debunks HMRC Estimates
The response by FCSA has also debunked estimates by HMRC that non-compliance in the private sector to IR35 will cost the Exchequer £1.2 billion by 2022-23. Moreover, the trade body has also exposed falsehood in HMRC’s claim that about contractors that provide services through the PSCs have equivalent status to employees.

According to FCSA’s CEO, the £1.2 billion estimate was based on the Fiscal Risks Report of Office for Budget Responsibility (OBR). The OBR had cautioned that the estimated risks could be in both directions, which implies that the HMRC’s claim is exaggerated.

Kermode had stated that the HMRC and the HM Treasury had used inflated figures in support of the IR35 legislation. The reality is that the IR35 reforms had been a failure that had driven up the cost of non-compliance. The tax rules have aggressively targeted contract workers and unfairly pinning them inside the IR35 thereby causing financial misery. The counter proposal by FCSA takes a more balanced approach to IR35 compliance throughout the supply chain resulting in fair assessments.

Recruiters in the UK are busy preparing for the expected extension of IR35 working rules. The government’s IR35 consultation closes on 10th August 2018. It’s expected that the controversial non-workers tax rule will be extended to the public sector.

Harvey Nash – a recruitment and outsourcing services in the UK – has changed its business model in line with the expected regulatory changes. Last year the company had bought Crimson Digital. According to the CEO of the company, Albert Ellis, the company is now focused on a 50/50 split between outsourcing and recruitment.

He said that companies are now looking at outsourcing their work. They don’t want to meet staff shortage without having to deal with IR35. He said that contract work won’t disappear. Instead, it will likely morph into project-based outsource work.

The CEO and chairman of Antal International, Tony Goodwin, has also said that his company is preparing for the IR35 changes. He says that the extension is inevitable, and companies need to prepare for it.

He says that IR35 will hit hard on the contractors, particularly higher paid ones. The extension of the rules will probably lead to contract workers moving abroad. Some companies may also ditch contract work altogether.

The tax advantage and flexibility have the main incentives for independent contractors. Things will change for the worse for contractors after the IR35 extension. This may result in the contract workers look for alternatives.

The flexibility has been the main driving force in the British labour market. According to Goodwin now the government is taking away that freedom. This in addition to the expected Brexit next year is not good news for the contractors.

Adrian Marlowe, the chairman of the Association of Recruitment Consultancies, also opposes the IR35 extension. He claims that the IR35 tax reforms necessarily penalises contractors and hiring agencies. The issue of non-compliance should be addressed. But this is not the IR35 reform is not the right way to address the problem.

About the IR35 Tax Reform
The government had introduced the IR35 off-payroll working rules in April 2017. The rules required public sector companies to determine the employment status of off-payroll workers. This has resulted in a lot of confusion with many contractors wrongly placed inside IR35. In case the worker is caught inside the IR35, the recruitment agency had to deduct income taxes and employer’s NI.

The government is now considering an extension of the rules to the private sector. Experts suggest that there is no use raising voices against the tax rules. Companies need to understand the consequences and proactively prepare for the changes.

Gail Cartmail, the assistant secretary general of Britain’s biggest trade union Unite, has vehemently criticized umbrella companies. She has called for umbrella companies to be outlawed for what she believed had caused misery to the workers. In addition, she had blamed the government for letting such companies wash their hands of workers.

In response to the blinkered view of Unite’s secretary general regarding umbrella companies, the chief executive of Freelancer & Contractor Services Association (FCSA) Julia Kermode has called for the union to educate itself. She has called for the union to consider the benefits for workers by working through umbrella companies before making such vitriol remarks.

Ms. Kermode has said that FCSA is the representative body of umbrella companies and is committed to preventing exploitation of workers. She said that umbrella companies provide a value-added service giving a platform for workers to get employed. These companies enable workers to work on a number of short-term projects for different end-clients.

Invaluable Services to the Employment Sector
Compliant umbrella companies provide an invaluable service in the temporary employment market, according to Ms. Kermode. They provide the flexibility for workers to work for multiple clients while also ensuring their rights to employment. The companies make sure that the workers get all the 84 statutory benefits. The workers get the best of both worlds — the benefits of employment and flexibility of contracting.

Whilst compliant umbrella companies do not deduct national insurance contributions, margins, or pensions contributions, these overhead costs are derived from the assignment rates that are different from employees’ wages. However, Ms. Kermode had said that confusion can arise due to a lack of transparency between the gross pay rate of employees and the assignment rate. The FCSA continues to work with the concerned parties to raise standards and ensure compliance.

Ms. Kermode has stated that the FCSA have campaigned for recruitment firms to work in collaboration with recruiters. This is important to ensure that the workers are given the correct rate. Also, the agency fully supports the intention of the government in improving transparency, as recommended by the independent review by Mathew Taylor regarding modern employment practices.

The FCSA supports giving a choice to the employees regarding the holiday pay. They should be either allowed to have it rolled up or accrue in which case the payment is drawn down during a break between assignments.

Ms. Kermode has called for the secretary general of Unite to meet with the FCSA to dispel confusion and myths regarding umbrella employment. The FCSA accredited members comply with a strict code and the agency is committed to eliminating bad practices from the industry while promoting umbrella employment as invaluable for both workers and employers.

HM Revenue and Custom’s (HMRC) IR35 reform has attracted a lot of criticism after it was introduced last year. A lot of questions is being raised regarding the validity of the reform. However, the UK tax authority has not been able to provide satisfactory answers to the questions.

The criticisms regarding the IR35 reform has not been taken seriously by the government. Even Member of Parliaments (MPs) have questioned the validity of IR35 reform.

Grant Shapps, the Conservative MP of Welwyn, had asked Stephen Barclay, the Secretary of State for Health and Social Care about blanket IR35 assessment by the NHS Trusts. The blanket assessment has resulted in many independent contractors being considered inside the IRS. This has caused financial difficulties for the contractors due to the increased tax burden. It has forced the contractors to look for work elsewhere contributing to the existing staffing crises for the NHS trusts.

Fallacious Responses of the Minister Regarding IR35
The Minister of State for the Department of Health and Social Care had responded to the criticism against IR35 by stating that there has been no sector-wide evaluation of the effects of IR35 reforms and the upcoming loan charge on NHS Trusts. But he cited a recent study by HM Revenue and Customs (HMRC) that around 58 percent of public bodies have not experienced any problems in filling vacancies and 63 percent did not experience an increase in rates payable to contractor due to the IR35 legislation.

This blinkered view of the effects of IR35 reform is fallacious. While around 58 percent have not faced any problems, there is the remaining 42 percent whose problems regarding staffing shortages cannot be ignored. Also, the above figures may not necessarily apply to NHS Trusts.

The Minister had also stated that no assessment has been made of the NHS Trusts that have carried out a blanket assessment of independent contractors. The changes in the Income Taxes (Earnings and Pensions Act) 2003 that was outlined in the 2017 Finance bill states that employment status should be made on an individual basis.

However, implementing the law is not straightforward. Assessment of contractors individually will result in increased administrative burden and the associated costs. In addition, it is not possible to ensure that off-payroll workers with similar role have equal working practices. Role-based blanket ruling favours ‘inside IR35’ results. Furthermore, the HMRC is unlikely to accept the same application method suggested by the Minister for ‘outside IR35 results’.

The concerns of the contracting professionals regarding IR35 reforms have been published by the Association of Independent Professionals and the Self Employed (IPSE). The publication comes as the IR35 consultation for extension of IR35 reforms to the private sector comes to a close.

The insights regarding the off-payroll tax reforms were gathered during a series of focus group sessions conducted by IPSE. The group sessions were held over the last few months in order to know the viewpoints of contracting professionals regarding the IR35 reform.

The latest publication of IPSE comes after the publication of another study last week in collaboration with the Chartered Institute of Professional Development (CIPD). In that study, the disruptive impact of IR35 reform in the public sector had been highlighted. The publication had revealed major disruptions in projects, mass exodus of skilled independent contractors, and a staffing crisis in the NHS due to implementation of IR35 in the public sector.

The mere proposal to extend the IR35 reform to private sector had a ‘chilling’ effect on independent contractors, enterprises, and on the economy.

IR35 Reform Would Compound Problems for Britain
Implementation of IR35 reform in the private sector will create problems due to lack of skilled talent in Britain. According to Tom Hayward, the Senior Press and PR Officer of IPSE, contractors working in the private sector who had left the public sector may be forced to decline work completely. They may elect to work outside the UK that may compound economic difficulties for the country due to Brexit.

Independent contractors don’t have a regular stream of income like regular employees. They are also not given incentives provided to regular employees such as annual paid holiday, bonus, sick leaves, and others. In this context, taxing independent contractors similar to regular employees is unfair and will account to grave injustice.

Majority of private contractors would probably decide to provide services outside the UK. This would result in a decrease in the tax revenue. Tax receipts and VAT collected by the HM Revenue & Customs (HMRC) would reduce drastically compounding problems for the UK economy.

A lot of contractors have stated that the private companies in which they work are woefully unprepared of the burdens placed on them due to the IR35 reform. Hayword has said that if the government wants to promote its ‘good work’ agenda, it must stop its pursuit of inhibitory policies.

The Recruitment and Employment Confederation (REC) and the Association of Independent Professionals and the Self Employed (IPSE) have recently given comments regarding IR35 consultation. The organizations have published feedback regarding the consultation that they will submit to the government.

The feedback of REC is based on concerns of recruiting companies. According to Karen O’ Reilly, the Confederation’s Stakeholder Engagement Manager, the extension of IR35 to the private sector in April 2019 could result in an upheaval in the private sector that can damage the labour market’s flexibility.

Last year, the implementation of IR35 in the public sector had resulted in complex problems that need to be resolved. The REC has called on the government to carry on a full review of the effects of the off-payroll working rules. An impact assessment should be carried on out in the private sector. Also, it’s important to ensure that the issues of the private sector are considered.

The feedback provided by IPS is drawn from the concern of contracting professionals. Following are the five main points of the feedback.

The IR35 rules are complex. To understand the law requires expert knowledge of case law upon which the off-payroll working rules are based. The HM Revenue and Custom’s (HMRC) CEST tool create additional difficulty in determining the employment status.

The decision to extend IR35 rules is us based on the false presumption that they have worked in the public sector. According to a recent research by Chartered Institute of Professional Development (CIPD), many public-sector bodies have imposed blanket determinations of the employment status. This has resulted in false results that have caused financial difficulties for a lot of independent contractors.

Due to the ‘disastrous’ effects of the IR35 rules, it would be imprudent to extend them to the private sector. Tristan Grove, the Press and Public Affairs Officer, had stated that extending IR35 when private businesses are facing uncertainty about the Brexit is ‘sheer madness’.

The decreasing productivity in the UK for the past few years will worsen when firms have to face red tape associated with the implementation of IR35.

IR35 rules create confusion since they tax independent contractors without granting them employment rights such as bonus and holiday pay. This confusion related to the employment status should be addressed.

The government also needs to acknowledge the range of business models in the private sector. It should ensure that sufficient resources and time are available for private sector business. This is important so that they can adapt to the new changes in taxation requirements.

Almost half of self-employed people have not been paid for work they have completed, research shows.

A report by the Association of Independent Professionals and the Self-Employed (IPSE) and the Involvement and Participation Association (IPA), which polled 800 sole traders, revealed that 43% have finished projects they were never paid for.

In some cases, individuals reported having not been paid single amounts of up to £60,000.

The problem was found to be worse among younger self-employed people, with 58% of those aged between 18 and 34 having not been paid for completed work.

To tackle the problem, IPSE and IPA recommended that the government should make prompt payments a legal requirement, as well as increasing the powers of the small business commissioner.

The report made a number of other recommendations for improving self-employment, including:

clarifying client obligations and promoting good practice

encouraging the self-employed to upskill

promoting co-working and co-operatives.

Nita Clarke, director of the IPA, said:

“It’s hugely encouraging that so many of the self-employed enjoy meaningful and satisfying work.”

“But it’s also vital we take a close look at those areas where work quality is less positive, such as around poor payment culture, access to government support and misunderstanding among some client organisations about how the self-employed should be treated.”

Matthew Taylor, Royal Society for the Encouragement of Arts, Manufactures and Commerce, commented: “‘Working well for yourself’ is an important report reinforcing the account of self-employment coming out of a range of research including by the RSA. The self-employed are a diverse group who generally accept the downsides of their work as a price worth paying for the upsides. Unfortunately, our policy systems – particularly in relation to employment law, pensions and benefits – still don’t work as well as they should for the self-employed’”

Simon McVicker, IPSE’s Director of Policy, commented: “This is a hugely significant and timely report. With “good work” the issue of the hour after the Taylor Review, it is vital that we understand what makes for good working conditions not just for employees but also for the self-employed.

A former top football agent, who helped bring some of Africa’s brightest talent into the spotlight, has lost his £1.2 million tax battle with UK’s HMRC.
The landmark case, heard at the Upper Tribunal, shows that Jerome Anderson and eight others failed in their attempt to avoid what the UK tax authorities described as “large amounts” of tax.

The scheme involved investments in the recruitment and training of young footballers at the Bafana Soccer Academy in South Africa, in which Anderson attempted to use this investment to claim a £3M as an artificial trading loss to reduce his tax bill.

The tribunal found that Anderson’s activities were more like those of an investor and this didn’t show that he was trading and decided that he could not claim a trading loss and therefore the tax was due.

Landmark case
This was the first case to consider s74B Income Tax Act 2007 which is an anti-avoidance provision that denies an individual any sideways loss relief claimed where that individual carries on a trade in a “non-active” capacity and where that loss arises in connection with tax avoidance arrangements.

Penny Ciniewicz, HMRC’s director general for customer compliance, said: “The court has made it clear that these schemes don’t work. Our public services rely on everyone paying their taxes and it’s unfair for people not to pay their share.

Ciniewicz urged any individuals that are “caught up in tax avoidance and who wants to put it behind them” to come forward now and “settle what they owe”.

HMRC’s victory is their ninth out of ten tax avoidance cases taken to court, with many more settling what they owe before reaching that stage.